Xbox Losses Up Despite Lower Sales

A surprisingly large loss for the Home and Entertainment business segment, which includes Xbox, was the most notable feature of Microsoft’s latest 10-Q filing with the U.S. Securities and Exchange Commission (SEC), in which the company reported financial results by business segment for the quarter ending Mar. 31, 2003. As in previous quarters, the company’s Client and Information Worker businesses earned the highest revenues and profits, with margins approaching 80%, while the Server and Tools business also showed profitability. All other divisions continued to lose money.

(For complete financial results and a comparison with previous quarters, see the chart “Finances by Business Segment“.)

H&E Loss Doubles from Last Year

The results for Home and Entertainment (H&E) were somewhat unexpected. Generally, revenues in this division correspond to sales figures for Xbox consoles. Because Microsoft loses money on each console sold, higher revenues in this division tend to equal higher losses; lower revenues usually mean a drop in losses. In an effort to reduce Xbox manufacturing costs, Microsoft recently convinced manufacturer Flextronics to shut its Xbox plant in Guadalajara, Mexico. All Xboxes are now made by Flextronics and Wistron in China, closer to where many Xbox components are manufactured and where labor costs are lower.